New Zealand Post’s bid to buy a rival’s courier contracts has hit a stumbling block, with the regulator concerned about anticompetitive outcomes.
The deal, reported by Newsroom in November, would see the state-owned carrier buy rival PBT’s courier customer contracts to bring greater volume into its network, which has received substantial investment in recent years.
The Commerce Commission revealed its concern in a second statement of issues released this week, saying based on the evidence in front of it, it was “currently not satisfied that the proposed acquisition would not be likely to substantially lessen competition in one or more relevant markets”.
This doesn’t mean the deal is dead in the water, with time for further submissions and investigations that could change the regulator’s view.
The commission found that while the two companies didn’t compete closely, NZ Post and PBT provided overlapping courier services, but NZ Post wasn’t a viable substitute for PBT customers, with the state-owned company appearing to charge “significantly more” for nationwide weekday courier deliveries.
“Our main concern relates to how the proposed acquisition may enable NZ Post to profitably raise prices in the supply of standard weekday courier deliveries between urban areas for business customers, compared to a counterfactual in which PBT remains independently owned.”
Because of its low prices and level of service, it said PBT’s withdrawal from the market could qualify as the removal of a disruptive influence.
PBT is majority-owned by private equity firm Waterman Capital.
Other competitors in the space include Aramex and certain Freightways brands such as Post Haste, New Zealand Couriers and Castle Parcels, but the regulator’s evidence was that PBT’s standard weekday courier service was often cheaper than other brands, and its removal would leave customers with only higher-priced alternatives.
The commission believes those competitors wouldn’t be likely to constrain NZ Post and prevent a substantial lessening of competition.
It also noted barriers for entry or expansion appeared to be high because of costs associated with establishing a national network and sufficient scale, meaning the likelihood of new competition in time to constrain the market was very low.
This goes against NZ Post’s characterisation of entry barriers, being that a new entrant could compete with as little as a single truck.
Post-acquisition, it said NZ Post could have “the ability and incentive” to raise prices to the customers that it would inherit from PBT to levels just below Aramex, Post Haste and Castle Parcels.
The incentive to do so was identified as covering its own costs after investing more than $200 million in its network transformation programme and “sees the acquisition as a way to add volume to its existing courier business without materially increasing its costs”.
Likewise, Aramex, Post Haste and Castle Parcels could also face incentives to raise their prices.
“These courier providers appear to compete more closely with PBT, especially for more price-sensitive customers. The loss of PBT as a low-cost independent competitor could relax constraints on those providers.”
Submissions on the second statement of issues will close on March 13.
The Commerce Commission’s decision on the deal was originally due on February 7 in line with its typical 40 working day timeframe but was pushed out by 57 working days in agreement with NZ Post.
